Suppose that the government sets a price floor for milk that is above the competitive equilibrium price
Question:
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price and that the government does not purchase any surplus milk.
a. Draw a graph showing this situation. Be sure your graph shows the competitive equilibrium price, the price floor, the quantity that would be sold in competitive equilibrium, and the quantity that would be sold with the price floor.
b. Compare the economic surplus in this market when there is a price floor and when there is not?
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a P E is the competitive equilibrium price P F is the price floor Q ...View the full answer
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